SEC charges LI hedge fund adviser with fraud

By: David Winzelberg September 28, 2011Comments Off on SEC charges LI hedge fund adviser with fraud

The Securities and Exchange Commission charged a Roslyn-based investment adviser with defrauding investors and misappropriating more than $1 million in client assets for his personal use.

The SEC alleges that Corey Ribotsky and his firm NIR Group repeatedly lied to hedge funds investors to hide the truth that his investment and trading strategy was failing during the financial crisis, according to a statement.

It’s alleged that Ribotsky falsely told investors that despite the adverse market conditions he could liquidate all of the PIPE, or private investment in public equity, investments in 36 to 48 months — a practical impossibility given the size of the investments. The SEC said Ribotsky misused investor money by writing checks to pay for personal services and such luxury items as a Lexus, Mercedes, and Rolex watch.

Robert Khuzami, director of the SEC’s Division of Enforcement, said the Ribotsky case is a classic betrayal of trust. “This enforcement action reflects our continuing commitment to bring to justice individuals and companies that committed fraud during the credit crisis,” Khuzami said in the statement.

Ribotsky’s attorney, Brad Gertsman released a statement late Wednesday responding to the charges.

“I think the complaint appears to be a stretch in an attempt to justify approximately two years of time and resources poured into the investigation,” Gerstman said. ” NIR and Ribotsky look forward to defending these allegations in court.”

In addition, the statement added, “after years of investigating claims of ponzi scheming and fraudulent valuation, primarily lodged by two disgruntled former employees who had been terminated for improper conduct, The NIR Group and its Managing Partner, Corey Ribotsky have been vindicated in part by the fact that the Securities Exchange Commission’s long running investigation failed to make a case in support of these specious claims.”

Previous LIBN coverage

Last year, former NIR Group investment analyst Daryl Dworkin pled guilty to three counts of securities fraud and conspiracy to commit securities fraud. He admitted to misleading investors by “making materially false statements and material omissions” regarding assets held in NIR’s funds, according to a letter sent to NIR investors from the U.S. Attorney’s Office. Dworkin reportedly told federal investigators that he was acting at the direction of NIR’s senior management.

Microcap public companies often engage in PIPE transactions to raise capital. According to the SEC’s complaint filed in federal district court in Brooklyn, NIR’s family of AJW Funds provided cash financing to distressed, emerging growth and start-up microcap companies quoted on the Over-the-Counter Bulletin Board or the Pink Sheets. The AJW Funds were typically invested in 120 to 130 different companies at any given time.

The SEC alleges that beginning in July 2004, Ribotsky began siphoning assets from one of the AJW Funds he was managing through NIR. Ribotsky typically wrote checks to himself or to “cash” and then instructed NIR office employees to cash the checks at a nearby bank and they would then give Ribotsky the money, according to the complaint.

NIR’s strategy of investing in distressed and startup companies began to show signs of failure by mid-to-late 2007, according to the SEC. Many of the distressed companies to which the AJW Funds had made loans were by then essentially defunct or on the verge of filing for bankruptcy. The SEC alleges that Ribotsky made false and misleading statements to investors while his hedge funds were struggling to create the illusion of success.

Gertsman said

The complaint seeks a final judgment permanently enjoining Ribotsky and NIR from future violations of the above provisions of the federal securities laws and ordering them to disgorge any ill-gotten gains plus prejudgment interest and pay monetary penalties.